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House bias : the economic consequences of subsidizing homeownership

Abstract

House Bias: The Economic Consequences of Subsidizing Homeownership 12 R e g i o n F o c u s • F a l l 2 0 0 8 B Y S T E P H E N S L I V I N S K I Ask most people in America today whether buyinga home is better than renting one, and you’ll likelyget a response that equates renting with stuffing money down a garbage disposal. The idea of homeowner- ship today is not one that simply evokes the comfort or pride of living in a place of one’s own. Instead, it’s become part of a common investment philosophy. But if you ask Edmund Phelps, the Nobel Prize-winning economist from Columbia University, he’ll proudly declare that he doesn’t own a home. And to him, that’s not a bad thing. “It used to be that the business of America was business,” said Phelps in August 2008 to Bloomberg News. “Now the business of America is homeownership.” In fact, many economists will tell you that the American love affair with homeownership has some consequences that you won’t normally hear discussed. Yet, despite the warning of some experts, the federal government continues to play a role as matchmaker in this affair. Policymakers have been promoting homeowner- ship as a goal for most Americans since the Great Depression. Even in the late 20th century, when the number of American homeowners was at historic highs already, the policy initiatives continued to expand. In 1995, when the homeownership rate as measured by the U.S. Census Bureau was about 65 percent, President Bill Clinton made it an explicit goal of his administration to boost it to 67.5 percent by the year 2000. So he enlisted his secretary of housing and urban development, Henry Cisneros, to spearhead a “National Homeownership Strategy.” The policies that resulted encouraged a loosening of lending standards. The race to encourage homeownership is a bipartisan one. President George W. Bush, while not committing himself to a specific number, proposed raising the homeownership rate for minority families through a govern- ment-led

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